Fear And Loathing In TV Land

TV broadcasters recognize that their business is migrating to the web. They're making digital investments, but in the process of doing so are trying to inject digital strategies into their traditional model instead of what may be really necessary: scrapping the model and adopting a new one. JL

Erin Griffith reports in Fortune:

It’s not just the content that’s changing—it’s the business model too. Netflix , HBO Now, and Amazon Video have taught cord-cutters to expect TV without commercials. That’s bad news for the U.S.’s $66 billion TV ad market—worse if you consider ad blockers, which will cost $41 billion in lost revenue this year. TV giants are making digital investments (but) by the time they catch up to the future, their business may be long gone

One year ago, as part of the television industry’s annual “upfront” presentations to advertisers, Turner Broadcasting president Donna Speciale stepped onstage at Madison Square Garden to tease her company’s upcoming slate of shows. Aware of the looming threat from digital upstarts, she made sure to get in a dig about the “bot traffic, viewability issues, and Wild West metrics” of digital video.

It’s a popular refrain among executives who work at traditional TV companies. At NBCUniversal’s own upfront event, ad sales chief Linda Yaccarino criticized the quality of content on Facebook FB 0.54% and YouTube GOOGL 1.66% . Even actor Rob Lowe, speaking at a party hosted by Fox, cracked a joke at the Internet’s expense: “I have no idea what the hell I just saw,” he said after screening a clip about online advertising.

There is good reason for TV executives to be defensive. In the span of one week last August, six major media companies—21st Century Fox, Viacom VIAB -0.34% , CBS CBS 0.32% , Time Warner TWC 0.00% , Discovery, and Walt Disney DIS -0.32% —lost more than $45 billion in market value, the result of investor concerns that young people are trading their cable subscriptions for streaming digital services. (More than one-fifth of U.S. households won’t pay for traditional TV by 2018, predicts eMarketer.) Execs who spent the past decade dismissing digital video have finally decided they need an Internet strategy—and it’s coming from a place of fear.

So TV giants are making digital investments, as NBCUniversal did with BuzzFeed and Vox Media last year, and striking partnerships, as ESPN recently did with Vice Media. They’re even instructing producers to create new shows that “look like Snapchat.”

For more on changes in the television industry, watch this Fortune video:

But it’s not just the content that’s changing—it’s the business model too. Ad-free streaming services like Netflix NFLX -2.03% , HBO Now, and Amazon Prime Video AMZN 0.40% have taught cord-cutters to expect their TV without commercials. That’s bad news for the U.S.’s $66 billion TV ad market—worse if you consider the rise of digital ad blockers, which industry groups estimate will cost $41 billion in lost revenue this year. The digital world has become a hostile place for advertising.

At this year’s “NewFronts,” digital darlings like BuzzFeed pitched to advertisers their desirable young audiences, homegrown stars, and cutting-edge analytics. In the back of the room, ad execs muttered that none of it mattered—most of their money will end up going to Google and Facebook, which increasingly control key functions of the digital media business: curation, distribution, hosting, and monetization. And therein lies the most frightening fact of all: By the time the TV companies catch up to the future, their business may be long gone.